By Choice or by Chance? Why is Nevada Last in Federal Funding and What Can Be Done About It?

1. By Choice or by Chance? Why is Nevada Last in Federal Funding and What Can Be Done About It? • Tracy M. Gordon • Fellow, Economic Studies • Prepared for Brookings Mountain West at UNLV • September 11, 2013 • With acknowledgement for title to Dutch Leonard, "By Choice or By Chance? Tracking the Values in Massachusetts' Public Spending," Pioneer Institute, January 1992.

2. Outline • An overview of federal grants • Where Nevada stands • Understanding Nevada’s position • What to do?

3. Federal Government Spends Considerably on Grants Source: CBO, 2013

4. Most Grants Are for Health and Human Services Source: CBO, 2013

5. Federal Grant Priorities Have Shifted Over Time Source: GAO, 2012

6. Why Does the Federal Government Make Grants? • Federal advantages in raising revenue • State and local advantages in spending (better information about local geography, demographics, costs) • Grants can smooth localspillovers (benefits and costs that transcend boundaries) and fiscal disparities

7. A Measure of Fiscal Disparities Revenue Capacity vs. Effort Spending Need vs. Levels Source: Yilmaz et al., 2008

8. Several Types of Grants • Block vs. Project or Categorical – gives recipient flexibility (TANF) vs. restricted to specific project or function (highways) • Formula vs. Competitive – awarded by formula (Medicaid) or competition (Race to the Top, TIGER) • Can also have matching or maintenance of effort spending requirements

9. Beyond Grants, Federal Government Spends on: • Retirement and Disability (Social Security, employee, veteran benefits) • Other Direct Payments to Individuals (Medicare, unemployment, EITC, Food Stamps, agriculture subsidies, etc.) • Procurement (direct purchases of goods and services, utilities, leases) • Salaries and Wages (for federal civilian and military employees)

10. Outline • An overview of federal grants • Where Nevada stands • Understanding Nevada’s position • What to do?

11. Nevada Ranks Last in Total Federal Spending Per Capita Source: CFFR, 2012

12. Nevada Also Ranks Poorly Compared to Western States Source: CFFR, 2012

13. Nevada Ranks Near Bottom in Federal Grants Per Capita Source: CFFR, 2012

14. Fewer Federal Grants Makes State More Reliant on Other Revenues Nevada U.S. Source: Census Bureau, 2013

15. Nevada Does Slightly Better Net of Federal Tax Payments

16. Outline • An overview of federal grants • Where Nevada stands • Understanding Nevada’s position • What to do?

17. In General, Spending Reflects Policy Choices And Conditions Source: Gordon et al., 2007

18. Similarly, Because Most Grants Are Formula Based… • “Balance of payments,” or federal taxes paid minus spending received, reflects: • Demographics (% aged 65+ or <18) • Economic well being (income and poverty) • Industry mix (defense, agriculture) • Federal presence (military, research labs) • Emergencies ( unemployment, disasters)

19. An Example from Medicaid

20. Nevada Has Less Poverty Compared to Other States

21. As A Result, It Gets Lower Federal Medicaid Match Rate

22. Nevada Also Includes Relatively More Young and Fewer Elderly Population Age <18 Population Age 65+ Source: Kaiser Family Foundation, 2013

23. Younger Population Is Less Expensive to Treat

24. Nevada Also Has Less Generous Medicaid Program Fewer optional eligibility groups + Fewer optional benefits = Fewer federal $s

25. Other Factors Direct More Federal Spending to Nevada Source: Tax Foundation, 2013

26. Nevada Also Was Hit Hard in Great Recession

27. Nevada Benefited from 2009 Recovery Act

28. Outline • An overview of federal grants • Where Nevada stands • Understanding Nevada’s position • What to do?

29. Federal Grants Require Management

30. State Political Institutions Can Complicate Management

31. Local Government Constraints Also An Issue 1=Relatively autonomous 2=No TEL, 2-revenue sources 3=Property Tax, No TELs 4= One Revenue, TEL constrained 5=Straightjacket Source: Michael A. Pagano and Christopher Hoene, “States and the Fiscal Policy Space of Cities” in Michael Bell, David Brunori, and Joan Youngman, eds. The Property Tax and Local Autonomy (Cambridge, MA: Lincoln Institute of Land Policy, 2010), pp. 243-284

32. State Is Taking Positive Steps • Gov. Sandoval has indicated he will participate in ACA Medicaid expansion • Office of Grant Procurement, Coordination, and Management established in summer 2011 (SB 233) • Office reports higher project grant awards success rate in 2012 (85% vs. 56% in 2011)

33. Federal Uncertainty Looms • Ongoing focus on deficit reduction • Further reductions to non-defense discretionary spending are likely • Long term proposals to restructure Medicaid, limit tax breaks benefiting states and localities

34. Best Thing States and Localities Can Do Is Be Ready • Redefining “core” services • Entering into shared service and financing arrangements where appropriate • Engaging citizens in productive conversations about budget tradeoffs

35. Questions? Tracy M. Gordon Fellow, Economic Studies BROOKINGS tgordon@brookings.edu Thank you